Not So Fast My Friends! Judicial Approval & Settlement of FLSA Claims

Employers facing FLSA litigation will sometimes turn quickly to offers of judgment or settlement negotiations with named plaintiffs to minimize the costs of protracted litigation. For some employers, this presents an appropriate strategy. For others, this only invites further litigation with different plaintiffs. In any event, the private settlement of FLSA disputes requires careful consideration beyond settlement of the “typical” case. As a federal court in Florida recently held, “an employer undertakes a private resolution of an FLSA dispute at his peril.”

In Dees v. HydraDry, Inc., No. 8:09-cv-1405, 2010 WL 1539813 (M.D. Fla. Apr. 19, 2010), District Court Judge Steven D. Merryday rejected a stipulation of dismissal of an FLSA claim and reminded employers and their counsel of potential pitfalls in the settlement of FLSA claims. In particular, Judge Merryday held that “[a]n employee entitled to FLSA wages may compromise his claim only under the supervision of either the U.S. Department of Labor or a federal district court.”

In Dees, the parties reached a settlement agreement on the plaintiff’s claims for overtime compensation and presented the district court with a stipulation of dismissal. In the stipulation, the parties reported that the employer agreed to pay the plaintiff actual and liquidated damages and listed each amount. The parties also reported a separate agreement to pay attorneys’ fees and costs of the plaintiff and again listed the amounts. As a result, the parties concluded and noted in the stipulation that “no judicial scrutiny is needed.” The district court disagreed.

In a 29-page opinion, Judge Merryday concluded that, in order to effectuate the purposes of the FLSA, settlements of FLSA claims based on payment of actual damages, liquidated damages, fees, and costs – even in full – require judicial approval if any compromise of an employee’s FLSA rights is included in the agreement.

For example, the employer in an FLSA case might offer full monetary compensation to the employee for the FLSA claim but might require the employee to refrain from informing fellow employees about the result the employee obtained. Or the employer might require the employee to trim the shrubbery at the employer’s home each weekend for a year. In either instance, the employee outwardly receives full monetary compensation for his unpaid wages but effectively the additional term (the “side deal”) confers a partially offsetting benefit on the employer.

As a result, under Judge Merryday’s order, if an employee concedes or agrees to anything outside of full compensation, parties must seek judicial approval of the settlement agreement for FLSA claims, disclose to the court all disputes resolved by such agreements, and disclose all terms and conditions of the agreements to the court.

Judge Merryday noted that in the Eleventh Circuit, settlement of FLSA claims outside the context of DOL supervised settlements has long required court review and approval. Lynn’s Foods Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982). Interpreting and applying the Lynn’s Foods standard, Judge Merryday then set forth a two-step process to evaluate settlements of FLSA claims. First, the court must evaluate the agreement to determine if it is “fair and reasonable” to the employee. Second, if the agreement is fair and reasonable to the employee, the court must evaluate whether the agreement frustrates implementation of the FLSA. If the agreement satisfies both conditions, courts within the Eleventh Circuit may approve settlements of FLSA claims.

Perhaps most interesting, Judge Merryday also opines on the enforceability of confidentiality provisions within settlements of FLSA claims. Specifically, Judge Merryday concluded, “A confidentiality provision in an FLSA settlement agreement both contravenes the legislative purpose of the FLSA and undermines the Department of Labor’s regulatory effort to notify employees of their FLSA rights.” Accordingly, Judge Merryday opines that courts should reject any settlement of FLSA claims with such provisions because such provisions are “unreasonable.”

Judge Merryday goes further, however. While the parties do not appear to have filed their stipulation of dismissal under seal or to have sought leave to do so, Judge Merryday squarely rejected any potential argument or suggestion that FLSA settlements may be filed under seal or submitted for in camera review. As Judge Merryday concluded:

Reviewing an FLSA settlement agreement under seal conflicts with the public’s access to judicial records, frustrates appellate review of a judge’s decision to approve (or reject) an FLSA compromise, contravenes congressional policy encouraging widespread compliance with the FLSA, and furthers no judicially cognizable interest of the parties. A proper consideration of the intent of Congress and the public’s interest in judicial transparency permits only one method to obtain judicial review of a compromise of an FLSA claim. The parties must file the settlement agreement in the public docket.

Consequently, Judge Merryday ordered the parties to move for approval of their settlement agreement and attach the agreement to their motion. After the parties did so, Judge Merryday approved the settlement agreement on May 25, 2010.

While Judge Merryday’s decision and Eleventh Circuit’s Lynn’s Foods approval rule is not the law in other circuits, this recent decision raises a number of important issues that should be carefully considered by employers and their counsel in all jurisdictions to ensure the enforceability of agreements resolving FLSA claims. Be careful out there.